Canadian mines dig from heavy losses

ByFred Langan, Special to The Christian Science MonitorFebruary 15, 1985

Toronto
— Canada is a sprawling, mineral-rich nation. But as with most commodities throughout the world, Canadian minerals have been hit by sharply lower prices for the past two years. That is especially true of precious metals: gold, silver, and platinum. But Canada's mining operations have made marked improvements in productivity over the past several years, according to industry analysts, and some money-losing operations have dug themselves out of the red. All they seem to need is higher prices. But while nickel mines have been getting them, gold mines have not.

The second-largest nickel operation in Canada, Falconbridge, has made an impressive comeback. Despite only a slight rise in nickel prices, the company made $28.7 million (Canadian) last year, compared with a loss of C$31.4 million the year before.

Falconbridge did it by paring down the operation. A company spokesman says productivity is up 80 percent. There are 122 people in the head office in Toronto now; in 1982 there were 250. The mining operation in Sudbury in northern Ontario employs 2,700; in 1982, 4,000 worked there. A refinery at Kristiandsand in Norway uses 900 workers to refine the nickel, copper, and cobalt ore from Sudbury; it used to employ 1,400.

Falconbridge's stock price has doubled, recently trading at C$95 a share on the Toronto Stock Exchange. When it seemed there was no future for nickel, copper, and cobalt in 1982 and the mine in Sudbury was closed, Falconbridge stock traded at C$33 a share.

The biggest nickel operation in Canada, International Nickel Company (Inco), has not done so well. It has registered a loss for 14 quarters in a row. Inco recently announced that it made $4.5 million (US) in the fourth quarter of '84, but that the profit turned to a loss after it paid dividends on preferred shares. Last year Inco lost US$77.3 million. That compares with losses in 1983 of US$234.9 million. Both the company and industry analysts predict 1985 will be profitable.

``It has taken a long time to get into the black, but the bad times are now behind us,'' Inco chairman Charles Baird said.

Cutting costs has meant cutting staff. Inco employed 14,900 people in Ontario in 1980; that is now 10,700. But it now produces 209 pounds of nickel per man-shift, compared with 162 in 1980.

The improvement in nickel prices has helped matters. Nickel hit a low on the London Metal Exchange of about US$1.40 a pound in 1982; at present it is around US$2.30. Both Falconbridge and Inco get 10 to 20 cents a pound more than the London exchange price for nickel.

The price of gold has been a drag on Canadian mines, however. Canada is the third-largest gold producer in the world, a long way after South Africa and the Soviet Union. Many mines are still economic when gold is below US$300 an ounce, and these are open; some are even expanding. But at least four Canadian gold mines have shut down, waiting for higher prices. ``They won't open again until gold hits US$500 an ounce,'' predicts Gordon Bub, a mining analyst with Gardiner Watson in Toronto.

According to a report by his firm, seven Canadian gold mines have production costs below US$200 an ounce, and five more hover within a dollar or two of that price. Campbell Red Lake actually has a production cost of US$133 an ounce, according to the report.

Mr. Bub contends that while the Canadian mining industry has improved since 1982, most copper mines are still losing money, most molybdenum mines are shut down, and zinc is one of the few metals doing well.

Although British Columbia is the hardest-hit mining area in Canada, Vancouver-based Cominco Ltd., a mining and refining outfit, recorded a big turnaround: a C$24.2 million profit last year, compared with a loss of C$39.3 million in '83. Cominco officials say profits were higher because the company made more money on zinc and gold, although it lost on copper and silver.